For the week until 29 Mar 2023, liquidity improved from an injection of INR 46K Crore through the LAF window to an absorption of INR 38K Crore as Government month end spending kicked in. Outstanding operations of INR 95K matured this week. RBI had announced a 56K crore fine tuning operation which matured on 28 Mar 2023. Market was expecting an announcement of another fine tuning operation to smoothen the year end volatility but none came. The weighted average call rate (WACR) came in at 7.11%.
RBI Governor, Mr. Das, had earlier suggested in the Dec policy that market participants must wean themselves away from the overhang of liquidity surpluses. I think RBI is trying to manage the WACR within the upper bound of the policy corridor (6.75%) and thereby suppling just about enough liquidity to manage the friction.
The durable liquidity surplus which stood at 101,000 Crore as on 10th March 2023 will move either flat or negative in Q1 FY2024. This is driven by an estimated 4% rise in CIC over the first quarter. A lot will be contingent on the RBI FX Operations in a highly uncertain global macro environment.
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